In the 1960 Supreme Court case James v. United States, the court ruled on a matter concerning federal income tax law. The petitioner, Jesse James, was convicted of embezzlement and ordered to repay his former employer as part of his sentence. He did not report this repayment as income on his federal taxes and was subsequently charged with tax evasion by the Internal Revenue Service (IRS). In defense, he argued that since he had acquired these funds illegally in the first place they should not be considered taxable income when repaid to their rightful owner. However, upon review by the Supreme Court it was determined that even ill-gotten gains are subject to taxation under U.S law; therefore Mr.James' repayment constituted an admission of additional unreported income for which he owed back taxes.

In the dissenting opinion for James v. United States, Justice Whittaker disagreed with the majority's interpretation of "gross income" in Section 61(a) of the Internal Revenue Code. He argued that embezzled money should not be considered as part of gross income because it is obtained illegally and without consent, thus does not constitute a gain derived from capital or labor which are prerequisites for taxability under section 61(a). Furthermore, he contended that an individual who embezzles funds is under an absolute obligation to return them; therefore such funds cannot be seen as providing economic benefit to him/her. The justice also pointed out that treating stolen money as taxable income could lead to absurd results where thieves would need official receipts for their thefts in order to accurately report their incomes. In conclusion, Justice Whittaker believed that Congress did not intend for stolen money to be taxed when they enacted Section 61(a), hence his dissent against the majority ruling.